First Mover Asia: Singapore's Lightbulb Capital Balances the 3 Parts of ESG Investing. Will the DeFi World Care?; Bitcoin, Ether Fall

The crypto world has focused more heavily on environmental issues than the social and governance aspects of different projects; major cryptos were in the red on Sunday as the Russian invasion intensified.

AccessTimeIconMar 7, 2022 at 12:04 a.m. UTC
Updated Mar 7, 2022 at 4:02 a.m. UTC

Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

Good morning. Here’s what’s happening:

Insights: A Singapore advisory and investment firm considers the three parts of ESG equally important in investing.

Prices: Bitcoin and most major altcoins were in the red on Sunday.

Technician's take: BTC is in a wide trading range with strong overhead resistance. Technical indicators are mostly neutral.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis.

And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

Prices

Bitcoin (BTC): $38,408 -2.4%

Ether (ETH): $2,550 -4.1%

Top Gainers

"
There are no gainers in CoinDesk 20 today.
"

Top Losers

Asset Ticker Returns Sector
Cosmos ATOM −9.3% Smart Contract Platform
Solana SOL −5.2% Smart Contract Platform
Internet Computer ICP −4.8% Computing

Cryptos Has a Lost Weekend

Bitcoin began falling late Friday and continued to drop through the early part of the weekend before coming to a temporary rest at about $39,000. At the time of publication, the largest cryptocurrency by market capitalization was trading below $38,500. Ether and major altcoins were in the red on Sunday.

Bitcoin's decline began as bad news throughout last week quashed even the faintest hopes of a resolution to the Russian onslaught and erased gains from earlier in the week when investors saw Ukraine and Russia's separate use of crypto as proof of its potential.

"The drop on Friday was a reversion to prices that shot up when people believed there might be more of an escape to crypto in the wake of fiat banks and payment gateways in Russia and Ukraine restricting access," Joe DiPasquale, CEO of fund manager BitBull Capital, wrote in a text to CoinDesk. "The price would be buoyed if there were a de-escalation with the Russia/Ukraine conflict."

That seemed unlikely on Sunday as Russia continued its brutal attacks against Ukraine with Russian President Vladimir Putin rejecting all overtures for a ceasefire, even to a targeted truce that would allow citizens of Mariupol, a besieged port of roughly 500,000 people, to flee. Russia has been targeting Mariupol and other Black Sea ports to isolate Ukraine's southern coast with its access to shipping and industry.

Russian forces pounded other major Ukraine cities with artillery and rocket fire, according to multiple reports. In one instance, mortar fired killed a mother and two children as they evacuated the town of Irpin near the capital of Kyiv. European and North American media outlets reporting on the invasion even found themselves under attack on at least one occasion.

Meanwhile, the three largest credit card companies, American Express, Visa and Mastercard announced over the weekend that they would be suspending operations in Russia. The decision added to a flurry of sanctions by countries aligned against Russia in hopes of crippling its economy. Already there are signs that the sanctions are biting hard as the ruble's value against the dollar has plummeted to less than a penny.

At the time of publication, Bitcoin was down about 2.5% over the past 24 hours and over 7% from early Friday when the largest cryptocurrency by market capitalization was still trading at roughly 41,600. Ether was changing hands at about $2,550 on Sunday, off over 4% from a day ago.

DiPasquale believes that bitcoin could hit "its next resistance just below $36,000 before bouncing back up to $40,000," and noted that "many, long-term investors" may see this as "a buying opportunity." But he added that that "new investors are skittish given global uncertainty, as well as uncertainty" about the Biden Administration's executive order on crypto in the near future.

Markets

S&P 500: 4,328 -0.7%

DJIA: 33,614 -0.5%

Nasdaq: 13,313 -1.5%

Gold: $1,970 +1.7%

Insights

Singapore's Lightbulb Capital Considers E,S and G Equally Important

ESG is a divisive issue in crypto.

Many in the decentralized finance (DeFi) sector associate the acronym with the first letter: E, for environmental (the rest is Social and Governance). And with this comes conceptions of militant greenism, with all its criticisms of blockchain technology for “melting the earth.”

Elon Musk’s concerns over bitcoin’s ESG credentials helped cause a crypto crash last May, and crypto developers and entrepreneurs term receives a certain degree of hostility in the industry.

But wait a minute, argues Lightbulb Capital’s Daniel Liebau. Lightbulb Capital is working with Singapore-based Modular to bring some reform to DeFi using a term familiar to TradFi investors. Lightbulb is acting as an advisor, while Modular is the investor.

Liebau wants the world to know that the S and the G are separate sometimes overlooked criteria in ESG – and we need to focus on all three aspects equally.

For Modular, the S in ESG may stand for social but it also wants to use the S to emphasize sustainability. It’s not just about the carbon footprint (important because Modular prefers less energy-intensive proof-of-stake projects) but rather about the project’s long-term potential.

“It’s interesting to see how people or projects drop in and out of the top 10 on CoinMarketCap over time,” Liebau told CoinDesk. “We want to eventually be invested those platforms that stay for a very long time because other people can build on them and create peer-to-peer commerce type of applications.”

Liebau argues that platforms focusing on things like financial inclusion rather than, say, lottery apps are the sustainable ones.

The other way Modular uses S is for social. When analyzing an investment opportunity the firm looks for the projects following on social media platforms. Why? Liebau points out there’s plenty of research that correlates between social following and platform adoption.

“You can tell that there are some platforms that are perhaps technically brilliant. … They tick all the boxes from an economics, technology and design perspective, but they haven't managed to attract a community, which can then drive the adoption,” Liebau said.

And what about G for governance? It seems that every major DeFi scandal involves problems with governance. The DeFi project Wonderland had quite the scandal recently when it turned out that "Sifu," a core member of the founding team, was actually Michael Patryn, the co-founder of failed Canadian crypto exchange QuadrigaCX and a serial scammer with a criminal record.

In the TradFi world, to get close to managing money Patryn would have to do a FINRA background check, which would likely reveal his sordid past.

“That's why we spend a whole lot of time to think about how is governance organized,” Liebau said. “What we basically bet on is that good governance eventually will be priced in, but then, obviously, it's too late to get in.”

Sometimes this means that a “benevolent dictator” at a project isn’t a bad thing, because that means progress can be made even if decentralization is slowed down.

“Decentralization is non-binary. It's not like you are decentralized or you're not decentralized. Especially if you're trying to create a new platform, then that needs to have a roadmap towards decentralization attached to it,” Liebau said. “When you try to decentralize everything on day zero, it's not manageable.”

The question is, however, whether bold attempts at corporate governance coming from Singapore – where many of these projects have their real-world entities registered – make much of a difference?

A16z’s approach to DeFi governance, centered around distributing governance tokens to outside groups to decentralize the project, went sideways when it turned out that some of these decentralized groups had financial interests in the project itself.

In theory, this approach to ESG melds well with the thesis that DeFi needs to embrace the best practices of traditional finance to attract that next institutional dollar. After all, that next dollar raised will likely come from an ESG fund.

It will only make a difference if DeFi, as a whole, feels it’s ready for this. After all, this is an industry that still has issues with revealing true names and prefers to operate with pseudonyms.

Pseudonyms wouldn’t necessarily exclude a project from Liebau’s vision of ESG.

“I think I'd be more comfortable if you could uniquely identify who they are. Do they need to be KYC? I think the future will tell,” he said, referring to know-you-customer rules. “That's something that we're not so certain about at this moment.”

After all, a pseudonym is how Michael Patryn became Wonderland’s 0xSifu.

Technician's take

CoinDesk - Unknown

Bitcoin weekly chart shows support/resistance (Damanick Dantes/CoinDesk, TradingView)

Bitcoin (BTC) was unable to catch a bid after overbought conditions appeared on the charts earlier this week. The pullback generated a loss of upside momentum, although lower support around $37,000-$40,000 could stabilize the down move.

Resistance at $46,700 remains intact, which capped a series of price rallies since the Jan. 24 low at $32,930. That could signal an extended period of consolidation, especially as trading volume continues to fade.

Still, there is potential for higher volatility this month. Bitcoin has been capped within the $30,000-$69,000 price range over the past year – a wide trading zone with sharp price swings.

The previous trading range from May to October 2020 resulted in a strong rally. This time, however, monthly momentum gauges are at an all-time low, which lowers the chance of a significant upside move in March and April.

For now, market conditions are tradable (small position sizes and tight stop losses) from a short-term perspective. And over the long term, the 40-week moving average, which is currently neutral/flat, has been a useful guide for trend direction.

Important events

8 a.m. HKT/SGT (12 a.m. UTC): China foreign exchange reserves (Feb. MoM)

9:30 a.m. HKT/SGT (1:30 a.m. UTC): Eurozone Sentix investor confidence (March)

8 p.m. HKT/SGT (12 p.m. UTC): U.S. consumer credit change (Jan.)

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

"First Mover" hosts were joined by Alona Shevchenko, Ukraine DAO founder, and Kenny Choo, True Global Ventures founding partner, as the crypto industry continued to raise funds to support Ukraine humanitarian efforts. Ananya Kumar of Atlantic Council weighed in on China's role in Russia sanctions. Plus, Michele Schneider of MarketGauge Group offered crypto market insights.

Headlines

Visa, Mastercard Join PayPal in Suspending Russian Operations: The payment processors cited Russia's invasion of Ukraine in announcing the move on Saturday.

Bitcoin Miner Mawson Signs Second Hosting Deal in a Week: The new deal will bring the company’s total hosting co-location power capacity to 114 MW, up from just 2 MW at the end of 2021.

US Jobs Up 678K in February, More Than Expected, Adding to Price Pressures: Bitcoin traders were monitoring the report because the Federal Reserve's efforts to slow inflation appear to be putting downward pressure on the cryptocurrency's prices.

Mickey Mantle Baseball Card NFT Sells for $471K in OpenSea Auction: The NFT iteration of the coveted 1952 baseball card racked up a bidding war in the sale’s final hour, making it one of the priciest sports NFTs ever sold.

Longer reads

Ukraine Fundraisers Bring Out the Best, and Worst, in Crypto: If you tried to make money off Ukraine’s fundraising efforts, your soul is just as broken as your brain.

Today's crypto explainer: What Is a Flash Loan?

Said and heard

"We don’t take this decision lightly. Mastercard has operated in Russia for more than 25 years. We have nearly 200 colleagues there who make this company so critical to many stakeholders. As we take these steps, we will continue to focus on their safety and well-being, including continuing to provide pay and benefits. When it is appropriate, and if it is permissible under the law, we will use their passion and creativity to work to restore operations." (Mastercard statement on suspension of services in Russia) ... “We are compelled to act following Russia’s unprovoked invasion of Ukraine, and the unacceptable events that we have witnessed,” said Al Kelly, chairman and chief executive officer of Visa Inc. “We regret the impact this will have on our valued colleagues, and on the clients, partners, merchants and cardholders we serve in Russia. This war and the ongoing threat to peace and stability demand we respond in line with our values.” (Visa CEO and Chair Al Kelly) ... "Mr. Service says the key to understanding Mr. Putin is his adamant belief that Russia is “a great global power” and that the Russian sphere of influence should extend to as many of the former Soviet republics as possible: “'There’s no state that’s more important to him than Ukraine.'" (The Wall Street Journal interview with Russia expert Robert Service) ... How much does this matter? Historically, economic sanctions have tended to be porous: Countries find workarounds, greatly reducing their effectiveness. But a funny thing has happened in this case. So far, economic pressure against Russia appears to be highly effective, crimping Russian trade even in goods that haven’t officially been placed under sanctions. (The New York Times columnist Paul Krugman)


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Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.

CoinDesk - Unknown

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

CoinDesk - Unknown

Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.

CoinDesk - Unknown

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

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